Thursday, December 10, 2015

Half of oil junk bonds could default

Being my view nonlinear thinking relating to the pressure of the middle class going
down and road of big divides poor vs rich being the power the poor has like
quick sand to the other classes. Long term the 1% won't hold up in view as lack of
sales from the poor causing a major crash, collapse in businesses and markets a
MadMax time!

"The good news is that few believe the commodity-fueled default wave will
cause an
all-out financial crisis like the mortgage bond storm did in
2008.
That's at least partially because banks are stronger and better
able to
withstand financial storms."

Being that the banks would still be stronger in war zones in a time of divide,
with energy companies taking a big hit. Seeing the poor on how they would react
to their energy bill going up to cover the loss. And looking at what it would result in,
the poor using less and use less relating to the less. Like the cable company trying
to sale cable to someone that has no power. It effects other markets.

Also noted is the crashing prices for raw materials like copper, iron ore, aluminum and
platinum are at the worst, so the trick a few did in my town of ripping out their copper
wiring in their home to get food money being they had their power cut off with a high
fee to turn the power back on they decided to "live off the grid!" and do without is
not worth doing now, and reflects a trend of desperation pushing the need to live
in other directions. MadMax!

I need to note wood burning is starting to get big in my town I am sure it will get more
depending on what results. (Many burn trash and anything they can not only wood!)

So for those that want to know crashing junk bonds and energy companies
raising prices to make up the loss drives the poor to cut back using less to match
their budget from their income. It results as up as going down pulling down
other markets.

~~~~~Warning: Half of oil junk bonds could default

Energy companies that loaded up on debt during the oil boom are
likely to have trouble
paying back those loans. Oil prices have
collapsed over 65% since the middle of last
year to below $37 a barrel
this week and there's no recovery in sight.

It's fueling financial
turmoil on Wall Street with Standard & Poor's Ratings Service
recently warning that a stunning 50% of energy junk bonds are
"distressed,"
meaning they are at risk of default. Overall,
about $180 billion of debt is distressed.
It's the highest level since
the end of the Great Recession and much of it is in
energy companies.

"The wave of energy defaults looming in the wings could make for some
very bumpy
roads ahead in 2016," Bespoke Investment Group wrote in a
recent report.
The firm described the junk bond market environment as
"pretty terrible" lately.

That's a dramatic change from recent
go-go years, when the shale oil boom along
with cheap borrowing costs
allowed energy companies to take on loads of debt to
fund expensive drilling operations. U.S. oil production skyrocketed, creating a
gigantic
supply glut that is currently pushing prices lower and hurting
the ability of many energy
companies to repay their debt.

"The
tide may be turning. Excess leverage during the good years has dented
credit
profiles," analysts at research firm Markit wrote in a report
published on Wednesday.

72% of metals, mining companies are distressed
Of course, it's not just oil companies under financial duress. S&P
said a whopping
72% of the bonds in the metals, mining and steel
industry are now distressed.

That makes sense given the fact that prices for raw materials like copper, iron ore,
aluminum and platinum have recently plummeted to crisis levels.
It's so bad that a key Bloomberg index of commodity prices is now sitting at its
lowest level since 1999.

No matter the sector, these financially stressed companies will be forced to cut costs
by selling off assets and laying off workers.

Corporate defaults are already on the rise. S&P said defaults recently topped 100
on the year, the first time that's happened since 2009. Almost one-third of 2015's
defaults have come from oil, gas or energy companies.

S&P warns the high level of distressed bonds is an indicator that
more defaults
are coming. The firm said being classified as "distressed"
reflects an "increased need
for capital and is typically a precursor to
more defaults."

At a time when oil and natural gas prices are
super low, there's more bad financial
news for these companies -- a
change in the interest rate environment.
The U.S. Federal Reserve is expected to raise interest rates next week for the first
time in nearly a decade, a move that will likely hurt demand for risky assets. Which companies could be next?
The list of distressed oil and gas companies features mostly small and
midsized
companies, though it does include some big names like Chesapeake Energy (CHK).
Carl Icahn owns a big chunk of Chesapeake, a natural gas and oil
company whose
stock price has plummeted 76% so far this year. Chesapeake
is trying to ease its
massive $11 billion debt load by getting
investors to sell their bonds back to the
company at a lower value.

Other energy companies on the distressed list include Denbury Resources (DNR),
Linn Energy (LINE) and Transocean (RIG) all of which have been slammed by
cheap oil prices.

Not a repeat of 2008
The good news is that few believe the commodity-fueled default wave
will cause
an all-out financial crisis like the mortgage bond storm did
in 2008. That's at least partially
because banks are stronger and better
able to withstand financial storms.

This a complicated question, but it boils down to the simple economics of
supply and demand.

United States domestic production has nearly doubled over the last six
years, pushing
out oil imports that need to find another home. Saudi,
Nigerian and Algerian oil that
once was sold in the United States is
suddenly competing for Asian markets,
and the producers are forced to
drop prices. Canadian and Iraqi oil production and
exports are rising
year after year. Even the Russians, with all their economic problems,
manage to keep pumping.

There are signs, however, that production
is falling in the United States and some other

oil-producing countries
because of the drop in exploration investments.

(*Because of bonds default.)

On the demand
side, the economies of Europe and developing countries are weak

and
vehicles are becoming more energy-efficient. So demand for fuel is
lagging a bit.

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